Assuming you have saved money for a down payment and that your total income will allow you to make a house payment, you are now ready to start the home buying process.
The general rule of thumb concerning your readiness is to calculate a percentage of your income for a mortgage payment. For instance if you bring in a monthly NET income of $1500, you may use 35% of that or $525 for housing. I say safely, because based on the rest of your living budget, that should leave you enough for other expenses.
A common Living Budget should read like this: 35% housing, 15% debt, 15% transportation, 25% other living expenses, and 10% savings.
The estimation above would allow you to buy a house with a $525 monthly budget, which should also include insurance and taxes for the month.
Generally, loan institutions require that you have 15-20% as a down payment.
The first step, before you start calling realtors is to visit your bank and talk to the loan officer. Some basic questions to ask are:
1. What are their interest rates? 2. Are there penalties for prepaying your loan? (You never know when that inheritance will arrive!) 3. Do they have any "first time home buyers incentives"? 4. What are down payment requirements for the loan? 5. Is interest on the mortgage loan fixed? 6. Is a co-signer needed for your loan to be approved? Also prepare a personal financial statement and the last two years tax returns.
Don't take the baby or the children and do it over your lunch hour. It is best to call and make an appointment, allowing enough time to get all your questions answered.
If you are having difficulty with your bank, shop around. They might change their mind if they think you will move your business next door. There are also some opportunities available for lower income families.
When you are finished with all this preliminary work, you are ready to call realtors.
There are two reasons for doing all this work before house shopping.
First, realtors will love you for it and work aggressively to help you find a home that not only fits your needs, but also your budget. They feel you are wasting their time otherwise.
Second, if you find your dream house and decide to put an offer on it, most contracts are written with a "14 day clause". That means you have to have a "letter of intent to loan" from your bank within 14 days or loose the contract.
Typically getting a bank appointment, getting the day off (if needed), and gathering up all the information can take 1-2 days or more. Then the bank has to put your loan proposal before their Loan Board of Officers, which only meets once a month. This could easily put you behind in reaching the 14 day limit. Also not that 14 days does not mean 14 business days. It means 14 days period! So realize it means 10 banking days with 4 days off for the weekend.
This should get you on a good start towards buying your first home. Happy Shopping. |
